Frequency Electronics (NASDAQ:FEIM) used its fiscal third-quarter earnings call to highlight two newly awarded contracts totaling about $45 million and to reiterate management’s view that growth in “next-generation” markets can build alongside the company’s traditional space and defense businesses.
New $45 million in awards spans traditional and proliferated satellite markets
Chief Executive Officer Thomas McClelland said the company announced two contracts valued at approximately $45 million in a press release issued alongside the earnings report. He described one award as part of Frequency Electronics’ traditional space satellite programs and the other as tied to the “proliferated satellite” paradigm. The company did not identify the customers, citing confidentiality.
In response to questions, McClelland said the company tends to be successful in proliferated constellation opportunities “when we can provide some technical edge.” He added that highly commoditized procurements with minimal technical requirements and an emphasis on lowest cost are more challenging.
Backlog reaches a record, with additional awards expected to add in Q4
Chief Financial Officer Steve Bernstein said fully funded backlog at the end of January 2026 was approximately $83 million, an all-time high for the company, compared with about $70 million at the fiscal year ended April 30, 2025. McClelland noted that the January quarter-end backlog record was reached before the two new contracts were awarded.
McClelland reiterated comments from the company’s prior call that backlog could move above $100 million, describing that level as something the company is “building towards” rather than a ceiling. He said the new business announced will “start to enter backlog” in the current fiscal fourth quarter, and in Q&A he characterized the funding profile contribution as expected to be “pretty significant” during the quarter.
Pressed on timing, McClelland said he expects the $100 million mark to be breached “relatively quickly,” pointing to the existing backlog level, the newly announced awards beginning to hit backlog, and additional pipeline activity.
Revenue mix shifts toward defense; margins pressured by program mix
For the three months ended January 31, 2026, Bernstein reported consolidated revenue of $16.9 million, compared with $18.9 million in the prior-year period, and roughly in line with the fiscal second quarter. McClelland said the year-over-year decline reflects particularly strong execution in fiscal 2025 that “pulled forward some revenue” that had been expected to extend into fiscal 2026. He added that the quarter was still the fourth-highest revenue quarter in the past 10 years, with the only higher quarters occurring within the last four quarters.
Bernstein detailed a significant shift in revenue mix:
- Commercial and U.S. government satellite programs: about $4.2 million (25% of revenue) versus $11.2 million (59%) in the prior-year period.
- Non-space U.S. government and Department of Defense customers: $12.5 million versus $7.4 million in the prior-year period, accounting for about 74% of revenue versus 39% a year earlier.
- Other commercial and industrial: about $180,000 versus about $367,000 in the prior-year period.
Bernstein said revenues were lower than the prior year partly because certain space programs were expedited in the prior fiscal year due to aggressive schedules. He also noted that “several new space bookings anticipated” for the quarter ended January 31, 2026 are now anticipated in fiscal fourth quarter 2026. In a later exchange, Bernstein clarified that he meant bookings pushed from the third quarter to the fourth quarter.
Gross margin and gross margin rate decreased for both the three- and nine-month periods ended January 31, 2026, compared with the prior year, which Bernstein attributed to a change in mix: higher-margin production satellite programs in the prior year periods versus lower-margin programs with significant non-recurring engineering in the recent quarter. He said the mix will vary quarter to quarter but added that management expects gross margin to move up over time, “particularly as we add more business with higher rate of unit production and follow on business from successful programs.”
Operating expenses rise; management points to non-recurring items and Colorado investment
Selling, general and administrative expense increased by about $213,000 year over year and represented roughly 21% of revenue, up from 18% in the prior-year quarter. Research and development expense increased to about $1.8 million from $1.4 million, representing about 10% of revenue versus 8% a year earlier. Bernstein said R&D can fluctuate with operational needs, and the company plans to continue investing to keep products “at the state of the art.”
Total operating expenses rose by about $540,000, which Bernstein said included approximately $500,000 of non-recurring expenses. He told investors the company anticipates more operating leverage as revenue expands faster than expenses. In Q&A, Bernstein identified investment in the company’s Colorado facility as “the largest piece” of the unusual operating expense items, and said he does not expect a large increase or decrease absent changes, while noting normal expense growth over time.
Operating income was approximately $1.3 million, down from about $3.5 million in the prior-year quarter, reflecting lower revenue, lower gross margin, and higher SG&A. Pre-tax income was approximately $1.4 million, compared with about $3.6 million a year earlier. Net income for the quarter was approximately $1.6 million, or $0.16 per share, versus approximately $15.4 million, or $1.60 per share, in the prior-year quarter. Bernstein attributed the large year-ago tax benefit primarily to the release of a valuation allowance, while the current quarter’s tax benefit included discrete benefits largely tied to stock compensation windfall deductions.
Defense demand and alternative navigation themes highlighted
McClelland spent part of the call discussing the geopolitical backdrop and its implications for the business, citing exposure to defense programs including Golden Dome, the Patriot Missile system, the B-2 Bomber, and the THAAD missile system. He said the company’s exposure on major missile programs is principally in missile batteries (ground-based units used to detect, track, and intercept threats) and that increased deployment of these batteries would expand the company’s business, adding the company has “already seen evidence of that in the current quarter.”
McClelland also discussed the impact of GPS jamming on civilian and defense systems and said demand for alternative positioning, navigation and timing (ALT-PNT) is increasing. He said the company has already won some new business in magnetometers and other quantum sensing efforts in the current fiscal year, including work out of its Colorado facility, and expects “a lot more ALT-PNT business in the years to follow.” In Q&A, he described magnetic navigation as one approach under development and said the company is generating revenue today through government-funded development activities, with an expectation that over the next decade this could shift toward product-based revenue.
Looking ahead, the company said it plans to participate in the Craig-Hallum NewSpace Conference on March 25 and the Morgan Stanley Golden Dome and National Security Innovation Summit on June 15.
About Frequency Electronics (NASDAQ:FEIM)
Frequency Electronics, Inc (NASDAQ:FEIM) is a U.S.-based designer and manufacturer of precision frequency control products and timing solutions. The company’s portfolio includes oven-controlled crystal oscillators (OCXOs), atomic frequency standards such as rubidium oscillators, GPS-disciplined oscillators (GPSDOs), microwave synthesizers, and integrated timing subsystems. These products are used to provide stable and accurate frequency and time references for applications that demand high performance and reliability.
FEI serves a broad range of markets, including telecommunications, aerospace and defense, satellite and space systems, test and measurement equipment, and critical infrastructure.
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